How Taxes Work When You're Paid as a Caregiver

You may owe federal income tax, Social Security tax, and Medicare tax on caregiver pay, depending on who employs you and how much you earn

The taxes you owe depend on three things: whether you work for a family directly, an agency, or a facility; how much you earn in a year; and whether your employer takes taxes out of your paycheck. If a family pays you directly, you're usually self-employed and responsible for all taxes yourself. If an agency or facility employs you, they typically withhold taxes like any other job. The threshold for owing federal income tax is around $13,850 for a single person in 2024, but you may owe self-employment tax at lower amounts.

Self-employment tax covers Social Security and Medicare — the same programs that regular employees and employers split. When you work for yourself, you pay both halves, which adds up to about 15.3% of your net earnings. This is separate from income tax and is the biggest tax surprise for new self-employed caregivers.

Key Takeaways

• If a family pays you directly, you are self-employed and must track your own income and expenses, then file Schedule C with your tax return.
• Self-employment tax (Social Security and Medicare) is owed on net earnings above about $400 per year, even if you owe no income tax.
• If an agency or facility employs you, they withhold taxes from your paycheck like a regular job, and you receive a W-2 form at year-end.
• Keeping records of what families pay you and what you spend on supplies or mileage reduces the self-employment tax you owe.
• Quarterly estimated tax payments are required if you expect to owe more than $1,000 in taxes for the year.

Self-employed caregivers: tracking income and expenses

When a family hires you directly and pays you themselves, you are self-employed. This means you report your income on Schedule C (Profit or Loss from Business) and file it with your regular tax return. You do not receive a W-2 form; instead, the family may send you a 1099-NEC if they paid you $600 or more in the year, though they are not required to.

The advantage of self-employment is that you can deduct legitimate business expenses, which lowers the income you owe tax on. Common deductions for caregivers include mileage to and from the client's home (currently 67 cents per mile for 2024, though this changes yearly), supplies you buy out of pocket, training or certification courses, and a portion of your phone bill if you use it for work. Keep receipts and a mileage log.

Self-employment tax kicks in when your net earnings (income minus expenses) exceed about $400 in a year. This is separate from income tax. You calculate it on Schedule SE (Self-Employment Tax) and pay it when you file your return, or in quarterly installments if you expect to owe a large amount.

W-2 employees: taxes withheld by your employer

If an agency, facility, or household employment service employs you, you are a W-2 employee. Your employer withholds federal income tax, Social Security tax, and Medicare tax from each paycheck based on the W-4 form you fill out when hired. You do not calculate or pay these taxes yourself — your employer sends them to the IRS on your behalf.

At the end of the year, your employer sends you a W-2 form showing how much you earned and how much tax was withheld. You use this form to file your tax return. If too much was withheld, you get a refund; if too little, you owe the difference when you file.

The main difference from self-employment is that you do not pay self-employment tax — your employer covers half of Social Security and Medicare. This makes W-2 employment simpler at tax time, though you have less control over deductions.

Household employment and the nanny tax

Some families hire caregivers directly but want to do taxes correctly. This is called household employment, and it triggers what people often call the "nanny tax." If you earn $2,700 or more from one household in 2024, that family is required to withhold and pay Social Security and Medicare taxes on your behalf.

Families can use a payroll service (like Care.com's payroll option or a household payroll company) to handle withholding and filing, or they can do it themselves by filing Schedule H with their personal tax return. Either way, you should receive a W-2 form at year-end, just like a regular employee.

If a family does not withhold taxes even though they are required to, you are still responsible for paying self-employment tax on that income. You can report this to the IRS, but it is easier to clarify the arrangement upfront and ask the family to use a payroll service.

Quarterly estimated tax payments

If you are self-employed and expect to owe more than $1,000 in federal income tax and self-employment tax combined for the year, you must make quarterly estimated tax payments. These are due on April 15, June 15, September 15, and January 15 of the following year.

To calculate what to pay, you estimate your total income for the year, subtract deductions, calculate the tax owed, and divide by four. If you are unsure of the amount, the IRS Form 1040-ES walks you through it, or a tax preparer can help. Paying quarterly avoids a large bill at tax time and prevents penalties for underpayment.

If your income is irregular — some months you earn more than others — you can adjust your quarterly payments to match. For example, if you earn most of your income in summer, you can pay more in those quarters and less in slow months.

State and local taxes

In addition to federal taxes, you may owe state income tax and local taxes depending on where you live and work. Most states with income tax tax caregiver pay the same way they tax other income — either withheld by an employer or paid by you if you are self-employed. A few states have no income tax at all.

Some cities and counties charge local income tax or occupational taxes on self-employed workers. Check your state's department of revenue website or ask a local tax preparer whether you owe anything beyond federal tax.

If you work in one state but live in another, the rules can get complicated. Generally, you owe tax to the state where you work, but some states have reciprocal agreements. A tax preparer familiar with your situation can sort this out.

Record-keeping and tax filing

Whether you are self-employed or a W-2 employee, keep records of all income you receive. For self-employed caregivers, this means saving pay stubs, checks, or bank statements showing what families paid you. For W-2 employees, your employer provides the records, but keep your own copies too.

If you are self-employed, also keep receipts and a log for any deductions you claim — mileage, supplies, training, phone bills. The IRS can ask for proof, and without it, you may lose the deduction.

File your tax return by April 15 each year. If you are self-employed, you will file Form 1040 with Schedule C (income and expenses) and Schedule SE (self-employment tax). If you are a W-2 employee, you file Form 1040 with your W-2 attached. Many tax software programs walk you through this, or you can use a tax preparer.

Frequently Asked Questions

Do I have to pay taxes on caregiver pay if I earn less than $13,850?

You may not owe federal income tax, but you likely owe self-employment tax if you are self-employed and earn more than about $400. Self-employment tax is separate and covers Social Security and Medicare. If you are a W-2 employee, your employer withholds taxes regardless of how much you earn.

What if the family does not send me a 1099 form?

You still owe tax on the income whether or not you receive a 1099. A 1099 is only required if you earned $600 or more from that family in the year. Keep your own records of what you were paid, and report it on your tax return even without the form.

Can I deduct childcare costs if I am a caregiver?

No. The childcare tax credit is for people who pay for childcare so they can work. As a caregiver, you are the one providing the care, so you cannot claim this credit. You can deduct business expenses like mileage and supplies.

What happens if I do not file taxes on caregiver income?

The IRS can assess penalties and interest on unpaid taxes, and in some cases pursue legal action. If you owe self-employment tax, you also miss credits toward Social Security benefits. It is better to file, even if you owe money — you can set up a payment plan with the IRS if needed.

Should I hire a tax preparer or use tax software?

Tax software works well if your situation is straightforward — one or two families, simple deductions, no state complications. A tax preparer is worth the cost if you work for multiple families, have significant deductions, work across state lines, or are unsure whether you are self-employed or a W-2 employee.